Energy Sector Powers Up, Week’s Big ETF Buy

By Brendan Conway

Just like that, here comes energy. The last month’s 6.5% leap beats every other sector in the S&P 500. The group is the index’s second-strongest performer this year, behind only utilities.

Oil rose past at $104 a barrel this week and is knocking on its 2014 high, which explains why the bulk of those gains came in the last four sessions. It’s also why the exchange-traded fund money turned sharply in energy’s favor this week.

Agence France-Presse/Getty Images

Energy pumps it up

Energy Select Sector SPDR Fund (XLE) was the most sought-after sector ETF, with its shares outstanding jumping more than 10% over the last four sessions, sending its assets under management $1.4 billion higher, to $10.5 billion. You guessed the number two — Utilities Select Sector SPDR Fund (XLU).

Oil’s price gains are good news for Exxon Mobil (XOM) and Chevron (CVX), the most obvious driver. Last week also brought word of profit gains atSchlumberger (SLB) and Baker Hughes (BHI).

Why is oil up so sharply of late? Commerzbank’s commodity strategists on Thursday write that it isn’t about fundamentals:

The reasons for the recent price hike in WTI and its convergence with the Brent oil price are puzzling. Is this due to declining crude oil stocks at Cushing, which are now at their lowest level since October 2009? Or is support being provided by the weak US dollar, which also suffered something of a setback yesterday following a speech by Chairman of the Fed Janet Yellen? Has the fact that the price has risen above USD 100 per barrel in itself triggered subsequent purchases? These are all possible explanations. In any case, it is not due to the fundamental conditions in the US crude oil market which is at risk of “spilling over”. According to the DOE, US crude oil stocks increased by more than 10 million barrels in the previous week. PADD III crude oil stocks on the US Gulf Coast alone have grown by more than 5 million barrels to a record level in excess of 207 million barrels.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.